The Easy Way to Wealth: Deferred Gratification

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Sometimes it is hard to wait.

Instant gratification is the hallmark of a good economy according to the government wonks and marketers. It is also the hallmark of the impoverished souls forced to work forever in a soulless job to cover the debt payments.

Watching clients for decades has made it clear there are only a few golden rules to wealthy. Automatic investing is one; deferred gratification is the other. Deferred gratification is what funds the investment account so I think deferred gratification is by far the more powerful of the two traits.

Instant gratification is sometimes hard to see. Today I will point out all the signs you are satiating your lusts a bit too quickly for your own good. By recognizing your overzealous spending habits you can delay gratification to your benefit. You give up nothing, but gain plenty of freedom, less (or no) debt and financial independence. It is a stress-free way to conduct life.

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Signs You Are Not Delaying Gratification

Charlie Munger, Warren Buffett’s partner at Berkshire Hathaway, said in a recent CNBC interview, he believed in “deferred gratification”. Munger is 93 years old. And he still believes the best way to live life is by deferring gratification. Does he know something most of us miss? Perhaps the secret to wealth AND happiness is delaying gratification, if not outright ignoring certain gratification permanently.

Even frugal people are guilty of instant gratification. The most obvious tell-tale sign someone is not deferring gratification is debt. Spending more than you earn is a direct result of satisfying lusts without proper thought. Every pretty trinket draws your credit card from its nest without regard for consequences.

Then we have the so-called “good debt”. Try to run that one past Dave Ramsey. Common practice says business and mortgage debt are good debts, along with student loans. Wrong! Debt is the acid which destroys the vessel which holds it.




Before anyone goes and accuses the friendly accountant writing these words of hypocrisy, I confess I have a small loan on my personal residence. Let me give you the excuse first. I have the cash to pay it off and the interest rate is so low my investments earn more. Now let me tell you a story about why my theory is 100% wrong.

Back in 1978 inflation was rocketing higher. Banks convinced farmers borrowing more money was wise because interest rates were lower than inflation and commodities were moving higher. (Interest rates would soon catch up to reality.) It’s the same argument I make today with my home. Inflation is 3% and my mortgage rate is 2.375%. Back then inflation was 8% and interest rates 7.5%. Same BS story when you think about it. Heck, dividend yields were darn near as high as the interest rates around 1980.

My family bought the line. We were dumb farmers and dumb farmers go broke. Interest rates moved higher, the economy stalled and commodity prices collapsed. The family farm went into bankruptcy in 1982. Here is why.

No matter how bad things get you can always cut costs. You can grow your own food, sew your own clothes, turn down the heat and eliminate any spending not 100% necessary. You can live on almost no money if you really have to. The one thing you can’t cut the cost of is debt. Those payments are due each month and there is no way to reduce the cost without coming up with the cash to pay the debt in full. And the money to pay the debt off in full has been spent long ago on something you don’t care much about anymore.

Student Loans and Mortgages are Required

No they are not! I understand most people starting out can’t pay cash for a home. I get it. However, once a home is secured, mortgage retirement must be a priority. No one ever lost their home to the bank without a mortgage. It sounds like a stupid comment, but I keep making it at the office and people keep ignoring the advice and losing their homes. Trust me, it’s not a crime to retire your mortgage. And don’t get me started on the tax deduction argument. I do not have to explain giving the bank $10,000 in interest to get $3,000 back from the IRS is industrial strength stupid.

Student loans are the other popular debt today. Gotta get a student loan so ya can get smart and earn mo money. It’s just another error in judgment and refusal to heed Munger’s advice: defer gratification. Spend today to pay it back later with interest. Dumb.

The first test of going to college is getting there. Putting it on the credit card is not earning the right to attend. Scholarships would qualify.

Stop! Think about what you are doing before going into debt.

Debt as a Cash Management Tool

By now you must think I am cold and callus. I get it. My attitude can rub some wrong.  But I have watched for too many decades client after client suffering the consequences of not following this simple advice, to live debt-free.

But debt can be a tool. Short-term use of debt in business frequently makes sense. If the money is there but using it would cost more than borrowing, then debt is the proper course as long as you retire the debt in short order.

Just like a mortgage, cash management debt is acceptable if a shoulder is put into killing the debt as quickly as possible. The same applies to student loans. If a modest amount of debt is needed to finish a degree it is usually the proper course to do so. But if you have no scholarships or personal cash to fund the bulk of your education expense you are engaged in instant gratification at the future’s expense. Student loans lingering five or ten years later is a problem. If you have to change your lifestyle to deal with the debt you might need to rethink the reason behind acquiring the debt.

Don’t get suckered into the leverage argument either. Of course leverage increases the rate of return on an investment. It also magnifies the losses when thing head south.

Defer Without Pain

Deferred gratification only hurts if you let it. Munger is 93 and still talks about delaying gratification for something he will never live long enough to see. That is the mindset that made him rich, mentally well adjusted, happy, and never feeling like he missed out on anything. Munger has enough money to buy anything he wants. But as Buffett said, more homes would not make him happier. In fact, it probably would make him less happy.

The only path to wealth is deferred gratification. If you buy everything you want when you first want it you will be broke. And miserable! Use an old trick when you see something you want. Sleep on it for three days. If you still want the item you at least can rest assured you want it enough to use it for an extended period of time.

Practice poverty, as Cato and Seneca recommend. It’s not that bad. Spending every penny you earn is the part that causes lasting pain and loss of freedom. You will find owning less stuff an important part of freedom. It’s not only the debt and lost opportunity cost of money you could have invested, it’s also the burden of storing, using, protecting and managing all the stuff you have. The weight of buying every trinket the moment you see it is quite a stressful lifestyle.

And you will not miss the stuff you don’t buy! All the toys and electronics are a distraction at best; a distraction from the truly awesome things life offers. When you buy something you also feel an obligation to use the item at least for a while to justify the purchase. Instant gratification is a harsh mistress. She demands your soul long after the transaction is finished.




Happiness is in less. The only time more is better is when basic human needs are unfulfilled. You need a minimum amount of quality food and water, clothing to keep warm and shelter. The shelter does not need any fanciness; the clothing can be old and plain to meet your basic needs. If you are not happy at this point more stuff will not fill the void as marketers would have you believe. After the basics, additional stuff is a job weighing you down. Only you can decide how much of a load you plan on carrying around for decades.

Charlie Munger still preaches deferred gratification for the country and himself. He refuses to buy just because he can. He knows buying will not make him happy or feel better. Munger enjoys good books daily and prefers a good deal over crazy spending even though it would make no difference to his wealth at this stage of the game.

I hope CNBC keeps the article up for a long time. You can read it here if they do. Munger’s comments were about the nation preserving natural gas resources while waiting for other parts of the world to exhaust their supply. His advice will not come full circle in his lifetime. It does not matter to him. Doing the right thing does.

This is an important topic people must hear. Please share, like and comment. Your small effort could make a difference in our modern world.



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Keith Schroeder

6 Comments

  1. Paul on February 24, 2017 at 12:59 pm

    Great article. Unfortunately it took my Wife and I until our thirty’s to learn this, but the more information like this that is out there, the more people will realize that you don’t have to live with debt.

    • Keith Schroeder on February 24, 2017 at 1:07 pm

      Never beat yourself up over something you can’t change, Paul. The past is the past. You made the leap and are moving forward. Stay strong, friend.

  2. Gene on February 24, 2017 at 1:32 pm

    I am stuck on the mortgage debt portion. My first home, I paid cash. I sold it for a nice profit. My second home, I financed. I didn’t need to, but I figured 4% interest, compared to 6-7% returns in the market. I often wonder about it, and go back and forth on paying it off. Any further thoughts on this portion? btw. great article, enjoy your posts.

    • Paul on February 24, 2017 at 1:45 pm

      Personally I don’t mind riskier, more aggressive investments in my retirement accounts, it’s my own money and I have a lot of time, but when it comes to a home I want that paid off as quick as possible because I don’t want the risk of using other people’s money.

    • Keith Schroeder on February 24, 2017 at 2:01 pm

      I wish I could give a better answer, Gene. I also have a small mortgage when I don’t need one, arguing with myself the investments I use to pay it off will do better than the mortgage cost. This isn’t 1978! Yet, I’ll still pay the darn thing off in the next two years. Call it my way of hedging the bet. In my opinion, if you have the resources and you want to keep the mortgage a bit longer, go for it. What I am dead set against is the over-leveraging. Too much house is a bad idea. Thanks for the pat on the back.

  3. Andy on March 26, 2017 at 10:06 pm

    Hi Keith – the tax deduction argument for mortgage interest is laughable, and I’ve pointed it out often. Maybe I don’t read enough or in the right places, but this is the first time I’ve seen it actually written.

    That you can’t lose your house to the bank if you don’t have a mortgage finally put me over the top on getting ours paid off. If all goes to plan, that’ll be done in the next month or two.

    Great blog, thanks for all the info.

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